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Cities without business accelerators risk losing start-ups

July 05, 2011|By Gus G. Sentementes
  • Nick Miller, left, and Adam Zilberbaum founded Parking Panda, a smartphone app that helps people rent out their parking spots. They moved their start-up out of Baltimore because of opportunities in New York.
Nick Miller, left, and Adam Zilberbaum founded Parking Panda, a smartphone… (Barbara Haddock Taylor,…)

Reporting from Baltimore — The two young entrepreneurs did everything right to launch a start-up company in Baltimore: They developed a bright idea. They won a local business competition. They networked.

But when it came time for Nick Miller and Adam Zilberbaum to take their business to the next level, the creators of Parking Panda — a smartphone app that helps people rent out their parking spots — took their fledgling company to the Big Apple.

What drew them away? A business accelerator that offered the pair $25,000, three months of office space in Times Square and the chance to schmooze with New York's high-profile entrepreneurs and venture capitalists.

"Having the opportunity in New York and not having one at all in Baltimore makes the decision a little bit easier," Miller said. "It's really a great opportunity to meet people who will help our business grow."

Baltimore might have had its own private accelerator in place this summer — Miller and Zilberbaum applied for it — but organizers couldn't pull together the necessary funding.

From Silicon Valley in California to Silicon Alley in New York, business accelerators are drawing attention from venture capitalists and attracting start-ups striving to be the next Facebook or Twitter. For many fresh-faced entrepreneurs, such programs fill the gap between having a good idea and creating a working prototype.

For other cities, there is a risk of getting lapped in the race to attract promising entrepreneurs if the local technology community can't develop its own accelerator program.

Accelerators are "kind of a global trend," said David Troy, an entrepreneur and prominent advocate for Baltimore's technology community. "The challenge here is that there's really no reason why those guys [Miller and Zilberbaum] shouldn't be doing that here in Baltimore."

Accelerators are short-term, intensive boot camps, helping founders through the earliest steps of building a solid business plan and a prototype website or product.

In exchange for money and guidance, an accelerator company will give its investors a small stake, ranging from 4% to 10%.

They differ from business incubators, which might nurture an already-focused start-up for a couple of years and help it attract new customers.

The accelerator model is becoming "a vital part of any economic ecosystem," said Tom Sadowski, president and chief executive of the Economic Alliance of Baltimore, a regional economic development organization. "You have to be thinking about the next generation of industry and business. It's part of the vital infrastructure we have to have in place."

Most of the accelerators grabbing headlines these days are funded by private investors. The concept has spread beyond the usual tech hubs to cities such as Philadelphia and Boulder, Colo.

There are also publicly funded programs that are typically associated with universities, but they tend to be more focused on commercializing highly specialized research rather than, say, building Web applications for consumers.

New York is better known as a financial center than a beacon for start-ups, but venture dollars nevertheless are flowing into the city.

Venture capital investment in the New York metro region was $580 million in the first quarter of this year, according to the National Venture Capital Assn., nearly triple the amount that flowed into companies in the Washington-Baltimore region during that same period.

California's Silicon Valley remains king of the start-up world. It pumped $2.5 billion into new ventures in the first quarter.

Statistics on how well accelerators are positioning companies for growth are limited.

TechStars and Y Combinator finished first and second in a recent ranking by a Kauffman fellow working with Northwestern University and the industry blog TechCocktail, which based results partly on whether the companies they assisted were able to secure additional investment.

James Jaffe, chief executive and president of the National Assn. of Seed and Venture Funds, said the spread of accelerators "is something we want to encourage."

But some see the potential for a market glut.

"Like anything, there can also simply be too many of these organizations," said Lawson DeVries, a principal with Grotech Ventures, an investment firm in Virginia. "The success of these programs is defined by the quality of the companies coming out of their classes, and as more and more accelerators crop up, this will obviously dilute the quality."

Sentementes writes for the Baltimore Sun/McClatchy.

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